Study highlights ‘knowledge gaps’ of crypto investors

Watchdog reports risks in Ontario for over 500,000 digital currency owners

TORONTO More than half a million Ontarians own cryptocurrencies, but many do not fully understand the risks associated with the emerging digital asset class, according to a new study from the Ontario Securities Commission.

Tyler Fleming, director of the Investor Office at the OSC, said the regulator published the study, titled Taking Caution: Financial Consumers and the Cryptoasset Sector, as an initial snapshot of a sector still very much in its infancy.

“As a regulator, the reason we wanted to do this study is there are a number of investor protection

concerns with this emerging cryptoasset sector — concerns around volatility, transparency, valuation, liquidity, et cetera,” Fleming said.

“We really wanted to get some baseline data.”

The OSC survey found that five per cent of Ontarians hold some form of cryptocurrency asset, and while that represents a small sliver of the overall population, five per cent still translates to more than 500,000 people.

Of those who own cryptocurrencies, the majority spent less than $1,000 buying them. Only nine per cent of cryptocurrency owners spent more than $10,000 on their assets, although that still translates to about 50,000 Ontarians.

Most of the numbers in the report are based on an online survey conducted by Innovative Research Group.

In March, they surveyed 2,667 Ontarians over the age of 18, and deliberately targeted young men because previous studies have found that males between 18-34 are the most likely demographic to own cryptocurrency assets.

The OSC report highlights some of the risks associated with cryptocurrencies, including initial coin offerings, an investment mechanism that has been used to raise an estimated US$5.6 billion for various cryptocurrency projects in 2017 alone.

The OSC report highlights a study on Bitcoin.com, which indicates that by February of 2018, 46 per cent of all ICOS in 2017 had failed, and another 12 per cent of ICOS were showing signs of failure.

“We want to certainly remind investors and market participants that, with respect to ICOS, they are subject to securities regulation,” Fleming said. “And before investing in any security, it is important that people understand what they’re investing in, what protections are available and who they might turn to in the case of a problem.”

On that point, the OSC has its work cut out for it.

“When asked who they believe regulates ICOS, half of past and present cryptoasset owners responded either that they don’t know who regulates ICOS or that they believe ICOS are not subject to regulation,” the OSC report says.

“This belief is incorrect,” the OSC writes, in bold letters, pointedly noting that the OSC is responsible for regulating any ICO that constitutes a securities offering.

Overall, Fleming said the “significant knowledge gaps” among people involved in cryptocurrency trading is a cause for concern.

“Understanding is lower than we’d like,” he said. “Only five per cent of people said they would feel comfortable explaining the details of cryptoassets to somebody else.”